Future Claimants' Representative et al v. Boy Scouts of America and Delaware BSA, LLC

Filing 37

MEMORANDUM. Signed by Judge Richard G. Andrews on 10/13/2021. (nms)

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELA WARE
In re BOY SCOUTS OF AMERICA and
DELAWARE BSA, LLC,

Chapter 11
Bankr. Case No. 20-10343-LSS
(Jointly Administered)

Debtors.
FUTURE CLAIMANTS ' REPRESENTATIVE,
et al. ,
Petitioners,
Civil Action No. 21-392-RGA

V.

BOY SCOUTS OF AMERICA and
bELA WARE BSA, LLC,
Respondents .

MEMORANDUM
•

f

Pending before the Court is the motion (D.I. 1) ("Motion for Leave") by the Future
Claimants' Representative ( "FCR"), the Official Committee of Tort Claimants ("TCC"), and the
~oalition of Abused Scouts for Justice ("Coalition") (collectively, "Movants") seeking an order
withdrawing the reference of a contested matter pending in the above-captioned chapter 11 cases,
involving the estimation of certain personal injury tort claims. Having considered the papers filed
in connection with the Motion for Leave, including the response of Certain Insurers (D.I. 14), the
opposition filed by Boy Scouts of America and Delaware BSA, LLC (together "BSA"), and
Movants' reply in further support of the Motion for Leave (D.I. 29), the Court will deny the
Motion for Leave for the reasons set forth below.

I.
,I ,'

BACKGROUND
On February 18, 2020, BSA filed voluntary petitions for relief under chapter 11 of the

Bankruptcy Code with the stated goal of addressing liabilities arising from historical acts of sexual
abuse which BSA could no longer address in the tort system on a case-by-case basis. (Bankr. D.I.

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4 at 3-5). 1 BSA filed a plan that it asserted would provide holders of abuse claims with an
equitable, streamlined, and certain process by which they may obtain compensation, by channeling
the abuse claims asserted against the Debtors and certain other third parties-including the Local
Councils, Contributing Chartered Organizations, and contributing insurers-to a settlement trust
pursuant to§ 105(a) of the Bankruptcy Code. Arguing that negotiations among key constituencies
had stalled, on March 16, 2021, Movants filed a motion in the Bankruptcy Court (Bankr. D.I.
2391) ("Estimation Motion") seeking estimation of the aggregate liability, by year, for nearly
85,000 abuse claims asserted in the chapter 11 cases. Two days later, and before the Bankruptcy
Court had any opportunity to consider the Estimation Motion, Movants filed the Motion for Leave
seeking to withdraw the reference and arguing that this Court, rather than the Bankruptcy Court,
should decide whether and how to estimate the aggregate amount of BSA' s liability.
II.

JURISDICTION AND APPLICABLE STANDARDS
District courts "have original but not exclusive jurisdiction of all civil proceedings arising

under title 11 , or arising in or related to cases under title 11 ." 28 U.S.C. § 1334(b). Pursuant to the
authority granted by 28 U.S.C. § 157(a), this Court refers cases arising under title 11 to the United
States Bankruptcy Court for the District of Delaware. See Am. Standing Order of Reference, Feb.
29, 2012 (D.Del.). "The district court may withdraw, in whole or in part, any case or proceeding
referred under this section, on its own motion or on timely motion of any party, for cause shown."
28 U.S .C. § 157(d). With respect to such permissive withdrawal, " [t]he ' cause shown' requirement
in § 157(d) creates a presumption that Congress intended to have bankruptcy proceedings
adjudicated in bankruptcy court unless rebutted by a contravening policy." Hatzel & Buehler, Inc.
v. Cent. Hudson Gas & Elec. Corp. , 106 B.R. 367,371 (D. Del. 1989) (internal quotations omitted).

1

The docket of the Chapter 11 cases, captioned In re Boy Scots of America, No. 10343 (LSS)
(Bankr. D. Del.), is cited herein as "Bankr. D.I. _."
2

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To overcome that presumption, the moving party has the burden to prove that cause exists to
withdraw the reference. See In re NDEP Corp., 203 B.R. 905, 907 (D . Del. 1996).
Courts in the Third Circuit articulate a number of factors for the court to consider in
assessing cause. One is " [w]hether the proceeding is core or non-core. " See In re G-I Holdings,

Inc., 295 B.R. 211 , 216 (D.N.J. 2003). Courts also apply the so-called "Pruitt factors," which ask
whether withdrawal would "promot(e] uniformity in bankruptcy administration, reduc( e] forum
shopping and confusion, foster

• the economical use of the debtors ' and creditors ' resources, and

expedit[e] the bankruptcy process." In re Pruitt, 910 F .2d 1160, 1168 (3d Cir. 1990). The Pruitt
factors are sometimes referred to as "minimum standards" because they were " not designed to be
exhaustive." NDEP Corp., 203 B.R. at 908-09 (listing other factors like the nature of the
proceeding, judicial economy, and whether the parties have requested a jury trial). That is not to
suggest that they set a low bar. Quite the opposite, cause to withdraw the reference "will be
present in only a narrow set of circumstances." Pruitt, 910 F .2d at 11 71 .

III.

DISCUSSION
The Motion for Leave criticizes the terms of the then-proposed plan of reorganization (see

Bankr. D.I. 2293 , 2294)-including the amount of funding for the proposed settlement trust and
protections afforded to third parties-and argues that, after a year of stalled negotiations, an
estimation proceeding is necessary to "move the process forward" and "make meaningful progress
toward compensating the survivors." (D.I. 1 at 2). Following briefing and discovery, the
Bankruptcy Court took the Estimation Motion under advisement at the May 19, 2021 hearing.

(See Bankr. D.I. 4716). It appears that no ruling on the Estimation Motion has yet issued; rather,
in the past few months, the Bankruptcy Court has overseen significant progress in the chapter 11
cases, including its appointment of a panel of mediators and referral of certain matters to
mandatory mediation (Bankr. D.I. 812); BSA' s proposal of a restructuring support agreement
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(Ban.la. D.I. 5466, 5887); ongoing mediation efforts, "involving at least thirty-four (34) Mediation
Parties" including "in-person mediation sessions on August 3-5, 18-20 and 23-24," and
continuing mediation sessions "held by videoconference and telephone on a near-daily basis,"
which have resulted in significant settlements with insurers and an agreement in principle among
BSA, the FCR and the Coalition (two of the Movants here), and other key constituencies "on
settlement terms that will result in an additional $1. 03 7 billion of cash contributions to the
Settlement Trust, in addition to the contributions of up to approximately $820 million that will be
made by the Debtors and Local Councils" (Ban.la. D.I. 6210 at 1-2). According to the Mediators '
Sixth Report, filed on September 14, 2021 , they "do not consider the Mediation to be closed," "the
[M]ediation remains ongoing," and "the Mediators believe that it will likely lead to further
settlements that maximize the value of the estates for the benefit of creditors." (Id. at 3). These
efforts have resulted in extensive revisions to the proposed plan, including a fifth amended version
and amended disclosure statement. (Ban.la. D.I. 6429, 6431 ). On September 30, 2021 , the
Bankruptcy Court entered an order approving the amended disclosure statement and scheduling a
plan confirmation hearing for January 24, 2022. (Ban.la. D.I. 6438, 6443 , 6445).

In light of the foregoing developments, it is unclear at this stage whether the relief sought
in the Estimation Motion would help or hinder the hard fought progress that parties have made to
date through their diligent mediation efforts. But even assuming that the relief sought in the
Estimation Motion would move the reorganization forward, the Court must deny the Motion for
Leave to withdraw the Estimation Motion because that matter is properly before the Bankruptcy
Court and Movant has failed to demonstrate cause for permissive withdrawal of the reference.
Movants ' argument for withdrawal of the reference turns on their proposition that the
Estimation Motion is a non-core proceeding under 28 U. S.C. § 157(b)(2)(B), and that it would
therefore be more efficient for this Court to hear the Estimation Motion in the first instance, rather
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than to have the Bankruptcy Court submit proposed findings of fact and conclusions of law to this
Court, subject to de nova review (id. §157(c)(l)). That argument fails because the premise is
false: under the statute' s express terms, the Estimation Motion is a core proceeding, and the
Estimation Motion is therefore one that the Bankruptcy Court has authority to hear and determine.

Id.§ 157(b)(l). It would accordingly be more efficient for the Bankruptcy Court, which has been
presiding over BSA's chapter 11 bankruptcy cases for more than eighteen months, to decide
Movants' Estimation Motion and determine whether any estimation is appropriate.
Section 157 provides, "Core proceedings include ... estimation of claims ... for the
purposes of confirming a plan under chapter 11." 28 U.S.C. § l 57(b)(2)(B). Movants base their
argument on an exception, which provides that core proceedings do not include the "liquidation or
estimation of contingent or unliquidated personal injury tort or wrongful death claims against the
estate for purposes of distribution in a case under title 11." Id. As Certain Insurers correctly
argue, that exception does not apply here. As its plain language makes clear, the exception applies
only to the liquidation or estimation of a particular personal injury claim "for purposes of
distribution"-i.e. , to fix the amount of an individual personal injury claim for purposes of
determining the share of the bankruptcy estate that will be distributed, or paid, on that particular
claim. See, e.g. , In re G-I Holdings, Inc. , 295 B.R. 211 , 218-220 & n.5 (D.N.J. 2003) (explaining
that the exception does not apply to an estimation of a debtor's aggregate tort liability, but rather
only to proceedings "to estimate the value of individual [personal injury] claims" in a manner that
"results in an effective liquidation of those claims"); In re G-I Holdings, Inc ., 323 B.R. 583 , 597,
611 (Bankr. D.N.J. 2005).
Core proceedings specifically include "estimation of claims and interests for purposes of
confirming a plan." 28 U.S.C. § 157(b)(2)(B). Although "the liquidation or estimation of
contingent or unliquidated personal injury tort or wrongful death claims against the estate for

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purposes of distribution" are non-core proceedings, "for purposes of distribution" means that the
proceeding must actually determine distributions on the claim. Movants concede that their
requested estimation is needed for purposes of confirmation. (See D.I. 1 at 9; Estimation Motion at
7, 13). Movants argue it is also for distribution, "at least in part," because it is designed "to derive
an aggregate value of the Abuse Claims that will, in turn, dictate the size at plan confirmation of
any post-confirmation trust for making distributions to abuse survivors." (D.I. at 3, 8-9). But, as
BSA correctly points out, that does not transform the confirmation-related proceedings into an
"estimation .. . for purposes of distribution." Movants themselves make clear the estimation will
neither determine claims allowance nor distribution amounts. (See D.I. 1 at 4 n.3 ; Estimation
Motion at 1 n.3). Accordingly, the matter is a core proceeding, properly before the Bankruptcy
Court.
As BSA points out, other mass tort cases, like In re Eagle-Picher Indus ., 1996 U.S. Dist.
LEXIS 22742, at * 15 (S.D. Ohio Sep. 25, 1996), illustrate this point. In affirming the bankruptcy
court' s ruling that the proposed estimation proceeding was core, the district court reasoned that the
estimation did not ( 1) determine the claim of any individual tort victim, (2) determine the merits of
any individual asbestos claim, (3) foreclose any state law defenses, or (4) establish the amounts to
be distributed to individual asbestos claimants. Id. at * 17- 18. Moreover, the district court noted
that the determination of whether a claimant would recover on a claim and the amount of any
recovery would be made pursuant to the confirmed plan's trust distribution procedures. Id. at* 18.
Thus, the district court held that estimation facilitated the confirmation of a plan, since the purpose
of the estimation "[was] not to make distributions to asbestos claimants but to permit the
formulation of a feasible plan." Id. at * 18-19.
In support of Movants' argument that estimation here will serve the purposes of

distribution, they cite In re Dow Corning Corp., 211 B.R. 545, 569 (Bankr. E.D. Mich. 1997). In
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that case, the bankruptcy court observed in dicta that estimation of personal injury claims for
purposes of confirmation could theoretically "create the result that the estimation was for purposes
of distribution as well"-before denying both of the estimation motions before it. Movants also
cite In re Roman Catholic Archbishop of Portland, 339 B.R. 215, 219-20 (Bankr. D. Or. 2006).
In that case, the bankruptcy court held that an estimation proposed by the debtor was for purposes
of distribution because it would decide the amount to be set aside for payment of tort claims,
which the debtor' s plan required be paid in full; thus, if the estimation turned out to be too low,
insufficient amounts would remain for claimants, effectively limiting their rightful distributions.

Id. As BSA points out, each of these cases is distinguishable. The Estimation Motion here would
not decide what actually gets contributed to the settlement trust, the corpus of which is to be
comprised of various assets contributed by different parties, including insurance rights; the
proposed plan also includes no right to payment in full for abuse claims. "[T]he question of
whether an estimation of aggregate liability is for purposes of distribution must be determined on a
case-by-case basis," Eagle-Picher, 1996 U.S . Dist. LEXIS 22742 at *15, and other courts have
rejected the idea that estimation to help inform the size of the Debtors' liabilities is "for purposes
·of distribution." See, e.g. , A.H Robins Co. v. Piccinin, 788 F.2d 994, 1012 (4th Cir. 1986)
("estimations of the debtors ' potential personal injury tort liabilities as an incident of the
development of a plan of reorganization are core proceedings within the bankruptcy court' s
jurisdiction").
Finally, Movants argue that the Court should withdraw the reference because the
Bankruptcy Court lacks the authority to try the abuse claims under 28 U.S.C. § 157(6)(5), which
provides that the "district court shall order that personal injury tort and wrongful death claims
shall be tried in the district court." Accordingly, Movants argue, the Estimation Motion must
proceed in this Court. (D.I. 1 at 14-15). But the Estimation Motion does not ask that any court
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"try" any abuse claims. As Movants admit, their requested "[e ]stimation of aggregate liability is

not intended to . .. determine the liquidated amount of a particular individual claim." (Id. at 4 n.3).
Rather, "such individual amounts will be determined through a yet untiled set of trust distribution
procedures .. . or through release of actions into the tort system for adjudication as permitted by
the [Trust Distribution Procedures]." (Id) . It is in those proceedings, such as an "action[] in[] the
tort system" to "adjudicat[ e]" "the liquidated amount of a particular individual claim," id., where
any such abuse claim will be "tried"-not in the proceedings to estimate the Debtors' aggregate
liability at issue here. Under these circumstances, § 157(b)(5) does not apply.

IV.

CONCLUSION
The Estimation Motion is a "core" proceeding under§ 157(b)(2)(B) and falls outside the

"non-core" exception for an estimation "for purposes of distribution. " As such, the Bankruptcy
Court can conduct any estimation it deems appropriate, and the reference need not be withdrawn.
Accordingly, the Court will deny the Motion for Leave.
A separate order will be entered.

October ) ~ , 2021

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